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NiSource to Appeal Royalties Case to Supreme Court

NiSource Inc. is taking its case to the U.S. Supreme Court after West Virginia's high court Thursday rejected a request to review a $404 million verdict against a former exploration and production subsidiary.

The appeal is expected to be filed within four months, and the Supreme Court could decide whether to hear it in early 2009, NiSource said.

NiSource's decision to appeal came after West Virginia's Supreme Court of Appeals refused to hear the company's request to review the verdict rendered by a state court in 2007 (Tawney, et al. v. Columbia Natural Resources). Last year a Roane County, WV, circuit court judge refused to set aside a $270 million punitive damage award and $134 million in compensatory damages against NiSource for underpaying natural gas royalties in West Virginia (see NGI, July 2, 2007).

The case was filed in 2003 against former NiSource subsidiary Columbia Natural Resources (CNR), which was sold to Chesapeake Energy Corp. in 2005 (see NGI, Nov. 21, 2005). NiSource has primary responsibility in the case, but Chesapeake also was named as a defendant.

A West Virginia jury in January 2007 awarded the $404 million verdict to a group of natural gas royalty owners. The lawsuit claimed that CNR deducted a portion of post-production costs incurred to gather and transport gas to interstate pipelines and that CNR did not pay market value for the gas produced under all the leases, even those providing for payment based on actual proceeds received for the gas (see NGI, Feb. 5, 2007).

NiSource CEO Robert Skaggs Jr. said Friday that the company was "surprised and disappointed" by the appeals court's decision.

"The court's decision to not even address the substance of an appeal in a case of this significance, particularly in light of the $270 million in punitive damages awarded at the trial court level, is unprecedented and contrary to the most basic principles of fairness," Skaggs stated. "We firmly believe in the merits of our position and will continue to vigorously pursue our arguments before the U.S. Supreme Court."

The court's "decision is certainly a setback," he said, but "as a company we remain focused on our investment-driven business strategy and are confident in our ability to deliver on our commitments to all our stakeholders."

NiSource said it would assert in its certiorari petition to the Supreme Court that its constitutional rights were violated by the manner in which the trial was conducted, particularly with respect to the punitive damages award. NiSource also plans to assert that its due process rights were violated by a lack of meaningful state appellate review of the trial court verdict.

NiSource "strongly believes that the case will warrant favorable review by the U.S. Supreme Court."

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